Terminology

What is DeFi?

DeFi is an acronym for Decentralized Finance. DeFi is based on an open account system, which guarantees that anyone in the world can use a series of financial services without any threshold. These financial services are mainly provided by some open source smart contracts, and the entire code and accounts can be publicly audited on the blockchain.

What are synthetic assets?

The term “synthetic asset” refers to a mix of assets that have the same value as another asset. Traditionally, synthetics combine various derivative products — options, futures or swaps — that simulate an underlying asset — stocks, bonds, commodities, indexes, currencies or interest rates. Users don't need to really hold that kind of basic assets. You only need to hold synthetic assets to get returns.

By anchoring derivatives in the financial market, creating virtual assets on the blockchain, and synchronizing their prices in the traditional trading market through oracles, so as to achieve on-chain transactions, the synthetic assets were created. Synthetic assets usually require excess collaterals.

Synthetic assets can represent any type of asset, from crypto assets, stocks, currencies, precious metals and other assets. The idea behind synthetic assets is to provide investors and traders with various asset classes of risk exposure, but they do not require them to hold the underlying assets or trust the custodian.

What are underlying assets?

Underlying assets are the financial assets upon which a derivative’s price is based. Options, swaps, etc. are examples of derivatives.

For example:

For stock options, the underlying assets are the stocks.

For currency swap, the underlying asset is the currency for the swap (usually the exchange rate).

For interest rate swaps, the underlying asset is the interest rate agreed.

For metal futures (such as copper), the underlying asset is the metal to be traded.

What is a Derivative?

A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets - a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset.

What are conventional synthetic assets?

Conventional synthetic assets simply track the price of an underlying asset, such as oETH, oBTC, oUSD, etc. When the price of an asset rises, the price of the conventional synthetic assets also rises. For example, if the price of ETH rises, the price of oETH also rises.

What are reverse synthetic assets?

The reverse synthetic assets track the price of an underlying asset but in the reverse direction. When the asset price rises, the reverse synthetic asset price drops.

For example, when the price of BTC drops, the price of iBTC will rise. In other words, if you want to short synthetic assets, you can buy iBTC.

What is a Blockchain Oracle?

The Oracle mechanism by which information from outside the blockchain is written into the blockchain is generally called an oracle mechanism.

The function of the oracle is to write external information into the blockchain to complete the data exchange between the blockchain and the real world. It allows definite smart contracts to react to the uncertain external world and is the only way for smart contracts and the blockchain to interact with the outside, or real, world. The price of synthetic assets is synchronized by blockchain oracles.

Generally, the execution of a smart contract requires trigger conditions. When the trigger condition of a smart contract is some external information (off-chain), an oracle machine is required to provide data services, and real-world data is input to the blockchain through the oracle machine, because the smart contract does not support external requests.

What are stablecoins?

Cryptocurrencies such as BTC and ETH are not suitable for daily payments and transactions due to their price fluctuations, so we need stablecoins.

Currently, Organix uses over-collateralized online assets to mint stablecoins. OGX is stored in a smart contract as collateral. In the contract, OGX can be used to pay off the debt of the stablecoin, or it can be automatically sold by the contract when the total price of the stablecoin drops below a certain limit. The over-collateralization method is also a commonly used method to create liquidity in traditional financial markets, and its automatic liquidation mechanism can also avoid the risks.